Today we welcome back a special guest to the blog: Stelter’s Senior Technical Consultant Lynn Gaumer, J.D. Lynn returns to share 6 tips to minimize risk to your charitable gift annuity progam.
The recent increase in the suggested maximum CGA rates is a win for donors and nonprofits. Annuitants will receive a higher percentage of their gift back each year. Nonprofits may experience an increase in gifts in exchange for CGAs. To make sure your gift annuity program thrives under the new rates, review your gift acceptance policy to determine if you need to make any adjustments in order to minimize risk to your organization. Here are six considerations:
1. Follow ACGA Suggested Maximum Rates
The ACGA rates are designed to have a target residuum (the amount remaining for the charity when the annuitant(s) has passed away) that is 50 percent of the original contribution. Nonprofits who elect to offer donors rates that exceed the ACGA’s suggested rates put their organization at risk of losing money on the annuity. According to the 2017 ACGA survey, 97 percent of charities follow the suggested ACGA annuity rates.
2. Review Your Minimum Age Requirements
If your minimum age for an immediate payment annuitant is 55 years or younger, it’s time to reconsider. According to the 2017 Survey of Charitable Gift Annuities, only 2 percent of respondents offered immediate gift annuities to annuitants who are 55 years or younger. This is down from 6 percent in 2013. At the same time there was an increase in deferred gift annuities for those 55 years or younger. It appears that organizations are moving away from offering immediate gift annuities to this age group and instead offering a deferred gift annuity option or a possible increase in minimum age policies.
3. Adjust Your Minimum Gift Requirements
What is your organization’s minimum gift requirement for a CGA? Surprisingly, some development officers do not know the answer. It’s time to review your gift acceptance policy. If yours is under $10,000, reconsider. The number of charities that accept gifts of less than $10,000 fell from 40 percent in 2009 to 28 percent in 2013 and remained at 28 percent in 2017. The number of respondents reporting minimum gift requirements for an immediate payment gift annuity of $25,000 continued to increase in 2017.
4. Add to Your Gift Annuity Reserve Fund
If an annuitant passes away before his or her life expectancy, consider calculating the remaining life interest and adding that amount to your charitable gift annuity reserve account. It is an easy way to grow your fund and minimize the risk when an annuitant lives longer than his or her life expectancy.
5. Consider Reinsurance
According to the most recent ACGA survey on CGAs, about 7 percent of charities reinsure their gift annuities. Reinsurance is a financing technique used to minimize risk for the nonprofit. When evaluating whether you should reinsure your gift annuities, do your homework. Always work with a highly rated company and review the expenses involved to determine if it is right for your organization.
6. Consider a Third Party Administrator
Many of our clients use a third party to handle the administration of their gift annuity program. This allows development officers to focus on donors instead of quarterly payments and tax forms. We often refer our clients to The Charitable Giving Resource Center. It may be worth your time to connect with them if your CEO or board is opposed to offering charitable gift annuities because of the financial liability risk and administrative headaches associated with having a program.
Do you still have questions?
Check out Lynn’s update on the new CGA rates. Or, just ask us in the comments!